Mortgage Broker Bonds

What Is A Mortgage Broker Bond?

A mortgage broker bond is a license that is typically required in order to work as a mortgage broker. The bond is necessary to comply with licensing regulations and to protect clients who may make claims against the broker if they violate the bond. The cost of the bond is used to pay back the clients to make up for lost damages.

What does a Mortgage Broker Bond Cost?

The typical cost for a bond is normally a small percentage of the bond price.  This is known as the premium, and typically it is around 1% to 4% of the total amount being bonded.  However, this is can vary due to the mortgage broker's experience, their financial standing and even their credit score.  For high risk candidates, the 1-4% of the price can become as high as 15%!

Why Do You Need A Mortgage Broker Bond?

The short answer is because the state requires the bond. In Georgia, mortgage brokers must obtain specific mortgage licenses to operate legally, which include the requirement to secure a mortgage broker bond. The long answer is that states have come to recognize that some mortgage brokers act unscrupulously. When that happens, the damage is significant. So, in order to reduce the damage to borrowers against this type of potential devastation, many states require mortgage brokers to be bonded, which will help protect consumers against those mortgage brokers who don’t want to play by the rules.

Mortgage Broker Surety Bonds

There are homebuyers and lenders. Your work as a mortgage broker will be to help bridge the difference between the two. Your job will be to help the potential homebuyers find the best deals possible from a lender.

Being the intermediary of the two, you create many opportunities for either party.  Some of these opportunities can be exploited for financial gains, usually with one party getting a raw deal out of it or getting ripped off. One of the parties, or both, could end up suing each other, you, or the state to get some respite for the wrongs done to them.

Mortgage Company Bond

As a result, the various states came up with legislations that require mortgage brokers to purchase bonds as part of the licensing procedure. In addition to mortgage broker bonds, those acting as mortgage lenders must secure a more substantial mortgage lender bond of $250,000. This surety bond is to help keep the mortgage brokers honest, and to provide funding should the mortgage broker not fulfill their end of the bargain.

Who Needs A Mortgage Broker License?

There are various professionals who work within the mortgage industry. In addition to a mortgage broker license, some professionals may also need to obtain a mortgage lender license depending on their role and the state requirements. All these professionals have their own separate codes of ethics, and they have different licensing requirements. This means that certain professionals may be licensed at a higher standard than others, but it depends on the state. No matter what, each Mortgage Broker is required by law to have a license.

Mortgage Broker Bond Cost

Varying from state to state, Mortgage Broker Bonds can cost from a mere $10,000 to $500,000. This changes from state to state, and what is being purchased.  Now, you won't have to pay the full $500,000 or even the $10,000.  What you will pay is called the premium, and is typically within 1% and 4% of the full bond cost. 

For Current Mortgage Broker Licensees

Find out if the bond needs to be adjusted when filing the Q4 Mortgage Call Report due on February the 14th. Mortgage lenders, like brokers, must also ensure their bond amounts are adjusted according to their loan volumes and state requirements. The bond amount could be adjusted by March 31st.

Obtaining a Mortgage Broker Bond

Obtaining a mortgage broker bond in Georgia is a straightforward process designed to ensure that mortgage brokers meet the necessary legal and financial requirements. To get started, you’ll need to gather some basic information about yourself and your business. This includes your name, address, business name, social security number, and business tax ID number. Additionally, you’ll need to provide details about your credit history, including any past bankruptcies or foreclosures.

Once you have this information, you can apply for a mortgage broker bond through a surety company. The surety company will review your application and provide you with a quote for the bond premium. In Georgia, the bond amount is set at $150,000, and the premium is typically a percentage of this amount, depending on your creditworthiness and financial standing.

If your application is approved, you’ll need to sign an agreement with the surety company and pay the premium. The surety company will then issue the bond and provide you with a copy. This bond must be filed with the Georgia Department of Banking and Finance as part of your mortgage broker license application. By following these steps, you can ensure that you meet the state’s requirements and are ready to operate as a licensed mortgage broker in Georgia.

Obligee Information and Claims

The obligee for the Georgia mortgage broker bond is the Georgia Department of Banking and Finance. This department oversees the licensing and regulation of mortgage brokers in the state, ensuring that they adhere to all relevant laws and regulations. If you need to contact the department, their information is as follows:

Georgia Department of Banking and Finance2990 Brandywine Road, Suite 200 Atlanta, GA 30341-5565 Phone: (770) 986-1633 or Toll-Free: (888) 986-1633 Email: [email protected]

If a claim is made against your mortgage broker bond, the surety company will conduct an investigation to determine the validity of the claim. If the claim is found to be valid, the surety company will compensate the claimant up to the bond amount. As the mortgage broker, you will then be responsible for reimbursing the surety company for the amount paid out. This process ensures that consumers are protected from any potential misconduct or negligence on the part of the mortgage broker.

How to Avoid Claims Against the Bond

To avoid claims against your mortgage broker bond, it is crucial to adhere to all applicable laws and regulations governing mortgage transactions. Here are some best practices to follow:

• Proper Documentation: Ensure that all mortgage loans are properly documented and disclosed to borrowers. This includes providing clear and accurate information about loan terms, interest rates, and any associated fees.

• Truthful Information: Always provide accurate and truthful information to borrowers. Misrepresentation or withholding information can lead to claims against your bond.

• Avoid Fraud: Steer clear of any fraudulent activities or misrepresentation. Engaging in such practices can result in severe legal consequences and claims against your bond.

• Maintain Records: Keep accurate and detailed records of all mortgage transactions. This helps in resolving any disputes that may arise and demonstrates your compliance with regulatory requirements.

• Prompt Response: Address any complaints or inquiries from borrowers or regulatory agencies promptly and professionally. Timely resolution of issues can prevent them from escalating into claims.

By following these guidelines, you can minimize the risk of claims against your mortgage broker bond and maintain a good reputation in the industry.

Frequently Asked Questions:

When can I adjust my bond amount?

A mortgage Broker licensees can change amount of their bond amount once per year.  Once you have filed the Fourth Quarter mortgage call report, you can determine the loan volume.  Following this, deliver the rider that will adjust the amount of the bond to NMLS by the 31st of March.

How do I increase or decrease my bond amount?

In order to change the bond amount, you will need to communicate with your surety that issued the bond.    In many situations, they will send out a bond rider that increases or decreases your bond amount.  The rider is sent out electronically through the NMLS, but you will still need to send the rider through the NMLS to the department regulator. 

Mortgage Surety Bond Requirements By State

This table does not include all 50 states, as the states not listed do not have a requirement for a mortgage broker bond, but have bonds for the other mortgage officers and companies.

Benefits of Working with a Licensed Mortgage Broker

Working with a licensed mortgage broker in Georgia offers several significant benefits to borrowers:

• Protection from Unscrupulous Lenders: Licensed mortgage brokers are required to follow all applicable laws and regulations, which helps protect borrowers from unfair or deceptive practices.

• Access to a Wider Range of Loan Options: Licensed mortgage brokers have access to a broader range of loan options and can help borrowers find the best loan for their specific needs.

• Expert Knowledge and Guidance: Licensed mortgage brokers possess the knowledge and expertise to guide borrowers through the loan process, helping them make informed decisions.

• Accountability: Licensed mortgage brokers are accountable to the Georgia Department of Banking and Finance and must maintain a good reputation in the industry. This accountability ensures that they act in the best interests of their clients.

By choosing to work with a licensed mortgage broker, borrowers can have confidence that they are working with a professional who is committed to their best interests and adheres to the highest standards of ethical conduct.

Conclusion

Mortgage broker surety bonds consumers a minimum level of protection against fraud, legal representation and professional competence.  Most states require mortgage broker surety bonds as a condition of their mortgage broker licensing process.  The surety bond requirements vary by state but generally are between $10,000 and $50,000.  These bonds allow the state and consumers a minimum amount to recoup expenses, fines and minor damages for failures by the mortgage broker to adhere to the laws of their state, including consumer protection laws against such things as pressure sales tactics, disclosure failures, unnecessary or exorbitant fees and even instances of fraud.

Mortgage broker surety bonds are no substitute for errors & omissions or professional liability insurance.  They are also no substitute for crime or fiduciary coverage.

Mortgage broker surety bond premiums vary by the bond amount and the credit worthiness of the applicant.  Newer firms can generally expect to pay more than more established firms of the same size.